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Turning State street upside down.

It's new, improved and entrepreneurial, too. Can all the efforts to restructure state government deliver a better system?

Faced with a runaway fiscal crisis, a bloated bureaucracy and a worsening tangle of red tape and inefficiency, the embattled political establishment decides the time is ripe for a bold new order, for a series of actions that far exceed the scope of conventional reform and cost-cutting. This is a job, the leaders conclude, that will require nothing short of complete government restructuring.

This is perestroika in the Statehouse.

Legislators and governors from coast to coast, whipsawed by persistent and successive budget deficits despite mammoth tax increases, are turning more than ever to the gospel of government reorganization and restructuring in search of answers to their problems.

Small wonder: Although state taxes have gone up by a record $25 billion nationwide over the last two years, as many as 35 states still face serious revenue gaps heading into the next fiscal year. Spending cuts, public employee layoffs, early retirement programs and a batch of one-shot revenue-raisers--like the sale of a New Jersey state highway that raised some $400 million in 1991 but still left the state facing a $600 million shortfall this year--have proved to be insufficient medicine. As a result, the language of the bureaucracy has taken on the tone of the private sector--"downsizing" is the prime buzzword of the '90s--as state officials explore everything from agency mergers to realignment of aid programs to privatization to get a grip on the situation.

One key indicator of the trend is the sheer number of task forces, review commissions and audit bureaus that have cropped up in recent years.

During the go-go, hyper-growth decade of the '89s, few states had cause to examine the structural thicket of their government operations. Today, not one lacks an appropriate organ designed to give the bureaucracy a thorough going-over. Clever acronyms abound: In Arizona, they call it SLIM--the State Long-Term Improved Management Task Force; Delaware has MAX--Maximizing Efficiency and Service Quality; and in Hawaii it's known as ACE--the Advisory Committee on Excellence. Virginia simply has Project Streamline.

In a state-by-state examination of the situation earlier this year, entitled "Looking for Light at the End of the Tunnel," the National Association of State Budget Officers (NASBO) concluded that "in many ways, fiscal 1992 may be a turning point for stage governments. [It may] be a year in which states realize that their current structures are not well suited for the challenges that lie ahead.

"Persistently deficits and the instability they cause may begin to give way to efforts to . . . redefine and reorganize state service delivery systems," the report said. "While only a start, these efforts may set the tone for a very different role for state government in the years to come."

A major public relations boost in this direction came with the recent publication of a ground-breaking book, Reinvesting Government, in which authors David Osborne and Ted Gaebler issue a sort of public policy "call to arms" for a vast re-thinking of government at all levels. The book makes the case for an injection of competition, flexibility and the enterpreneurial spirit into government operations and calls for a wide-ranging set of budgetary, personnel and regulatory reforms.

"Most of our leaders still tell us that there are only two wasy out of our repeated public crises: we can raise taxes, or we can cut spending," the authors write. "[But] for almost two decades, we have asked for a third choice. We do not want less education,fewer roads, less health care. We want better education, better roads and better health care, for the same tax dollar. Unfortunately, we do not know how to get what we want. Most of our leaders assume that the only way to cut spending is to eliminate programs, agencies and employees."

In fact, unconventional reform already is occurring:

* In Iowa, after a massive study led by a committee of private business executives and state agency heads, Governor Terry Branstad and state lawmakers have pared the number of state departments from 68 to 20, eliminated 40 state boards and commissions and cut state government personnel by 10 percent. The reorganization is credited with saving at least $60 million, even as spending for education programs and economic development has risen.

* In New Jersey, a management review commission appointed in 1990 by Governor Jim Florio produced savings of more than $275 million for FY 1992. The panel's members were drawn from labor, business and academia, with the auditing work assisted by a group of private accounting firms who agreed to assist the state free of charge. The Florio administration also has begun a bureaucratic reogranization that will merge several key agencies and rid the state of scores of boards and commissions considered obsolete. In addition, state lawmakers early this year launched an exhaustive review of New Jersey's multi-agency regulatory apparatus.

* In Rhode Island, based upon the recommendations of the Goverment Review Commission, officials have cut the number of state departments from 18 to 12, consolidated a number of duplicate functions across the bureaucray and established an office of inspector general to concentrate on ferreting out waste, fraud and abuse.

* In West Virginia, a state government reorganization drive has pared an estimated $100 million from the bottom line. The program is built around the consolidation into seven cabinet-level depatments of 150 separate state agencies, commissions, councils nd authorities. Agains, state officials relied upon the advice and recommendations of a special pane that included business leaders.

* In the state of Washington aa cost-cutting and efficiency commission has issued dozens of recommendations that have produced more than $150 million in savings for the state. Among other things, teams made up f business professionals, union leaders and legislative members are studying ways to improve state agencies.

* In Florida, Governor Lawton Chiles has set up a commission of business and community leaders to study the state bureaucracy and to suggest ways of making it more accountable and cost-effective. One controversial and far-reaching aspect of the Chiles programs calls for an extensive overhaul, and possibly abolishment, of the state civil service system and its rules governing personnel. The proposal, highly unpopular among public-employee unions, is designed to make the process f hiring, firing and shifting of state workers less cumbersome.

* In South Carolina, a special Commission of Government Restructuring appointed by Governor Carroll Campbell has recommended the consolidation of more than 145 boards, agencies and authorities into a cabinet form of government made up of 15 key departments. In a report issued last fall, the commission denounced the state's current bureaucratic makeup as "a span of control that far exceeds anyone's ability to manage effectively. . . . Left uncorrected [it] may lead to more fragmentation, duplication of effort and ineffective allocation of scare resources [in the face of] ever-worsening social and economic conditions."

South Carolina's thoughtful and laborious effort to bring order to its bureaucracy has drawn praise from officials in others states and from professional experts in goverments reorganizatio. But the sheer complexity of the task there--to redefine the lines of responsibility for thousands of activities, everything from highway repairs to socil servies--points up a key challenge facing advocates of radical bureauratic reform across the nation.

"It's extremely difficult," says South Carolina's reorganization commission director, Kenneth Long, pointing to a four-inch-think stack of detailed studies and reports that have preceded action on the plan. "And, over time, things change. You have to go back and constantly monitor his activity and improve upon it because the first time you do it, there is no guarantee that it is going to work."

According to James Garnet, a Rutgers University professor of public policy and administration who has examined government restructuring for many years, the landscape is fairly strewn with the wreckage of noble attempts that, for any number of reasons, went awry.

"It's a hard problem, an enormously difficult tightrope," says Garnett. "There are so many things at work [in governmenta] that it is hard to isolate the effects of a reorganization. . . . This is not something to be whizzed through as a desperate measure to save money to balance a budget. It is something that needs to be done with time and with much forethought."

Al Fasola, a management cosultant who helped oversee a state management efficiency campaign mounted in New Jersey during the mid-'80s, agrees.

"There is nothing more complicated and more needful of a sophisticated approach," warns Fasola. "And if you think you are just going to reorganize on the back of an envelope without involving masses of people and masses of information and having a sophisticated process of building a [political] consensus about it, not only will it not work but you run the risk of causing a lot of dysfunction within the [governmental] system."

Garnett, Fasola and others say one of the most crucial early tasks confronting any state that embarks on government restructuring is to define the goals clearly in advance by answering several key questions:

* Is the im to save money or produce more efficiency or both?

* If the size and scope of government are reduced, wht will that do to the delivery of vital services?

* If the plan involves the merging of agencies, will the resulting bureaucracy be larger or smaller?

* If layoffs are required, can they be accomplished with a minimum of disruption? If not, is it possible that the resulting personnel turmoil could detract from whatever gains are achieved?

* And finally, what about the political will to follow through on the plan, to build a consensus and to communicate the importance of it all?

It is upon this last point that many officials tend to stumble right out of the gate, contends Brian Roherty, executive director of NASBO.

"I m concerned that there is an inability, or unwillingness, on the part of a lot of elected officials to communicate to the public what it is they are trying to do, to put the whole thing into basic principles that they can talk about and that most people can understand," says Roherty. "It is much easier to hide behind the complexity than it is to step up and explain."

Recent events in New Jersey provide a case in point. There is no question that the administration of Democratic Governor Florio has enjoyed substantial success in its push to root out waste and inefficiency--savings some $275 million over 18 months through an internal audit of government operations. But a related intiative to shrink and reorganize the state's sprawling bureaucracy has not worked out so well, in part because the administration failed to build an advance political consensus among lawmakers and special interest groups.

The basics plan, launched in early 1991 amid a flood of public anger over record state tax increases six months earlier, was built around proposals to combine the functions of seven major government entities. The goal was to leave New Jersey with 16 cabinet-level departments, compared to 19 at present and a constitutional maximum 20. The main elements would merge the state Banking and Insurance departments with the Department of Commerce and Economic Development, th e Department of Environmental Protection with the utility-regulating Board of Public Utilities and the Treasury Department with the Department of Personnel.

Thus far, however, only the environmental and utility operations have been merged and it is still too early to call that move a success. The other key proposals fell victim to legislative politics. Questions were raised--and left largely unanswered--about exactly how much money would be saved by the mergers. Fueling the debate are concers among lawmakers that power would become too concentrated within the executive branch.

But the Florio administration also has found itself up against two other problems in its quest to downsize: A history of weak government reorganization efforts in the past and an entrenched, heavily unionized state workforce.

Much of what New Jersey's current executive regime is attempting in the way of restructuring was tried nearly two decades ago by then-Governor Brendan T. Byrne--and all of it came to nothing. Stymied by legislative infighting and by bureaucratic turf-protection, the Byrne administration's plans to carve up aand merge agencies backfired to the extend that he left office in 1982 having actually increased the number of cabinet-level state agencies from 14 to 20.

Another stumbling block in New Jersey--and one shared by many other states--has been a thicked of civil service rules and contract agreements with labor organizations representing more than 65,000 public emplyees. These rules explicitly allow workers who receive termination notices due to a reorganization to displace others based upon seniority. Through this process of "bumping," people can wind up in jobs they have never performed in agencies where they have never worked. Sometimes this bureaucratic musical chairs game ca take months to sort itself out. At one point, for example, a loss of federal grant money for the state Labor Department led to 50 layoffs. But by the time bumping was completed, some 700 workers across the state bureaucracy had been affected.

"Just cutting government positions doesn't necessarily save money," says Rutgers' Garnett. "There are a number of direct annd indirect costs involved in this."

That is why it is vital, says Garnett and others, for government officials who are contemplating a restructuring program or a series of new organizational maneuvers to stand back and carefully consider all the potential consequences of such actions.

"Is anybody relly looking to the longer term in all of this?" asks Brian Roherty of NASBO.

"I think there are some who are, but what officials need to say is, 'We want policies that will make sense beyond the current [fiscal and economic] problems.' In many cases, it appears the states are cutting their budgets rather than stating in the affirmative what it is they want to do and where they want to go."

Joint Purchasing: Strength in Numbers

Politics, policies and programs vary from state to state, but there is one thing common to all: paper. No state government can function without it, especially in an era increasily dominated by computer technology.

Taking note of that fact, officials in Minnesota and Wisconsin decided last year to manipulate the paper chase to their mutual advantage.

The two states entered into an agreement to purchase 6 million pounds of recycled paper for use in high-speed copiers. The arrangement not only saved money--about $225,000 in all compared to the two states' previous costs for copy paper--it has also laid the groundwork for a bi-state market for recycled paper.

"That's waste removed from landfills," says Jim Johnson, administrator of Wisconsin's Bureau of Procurement. "The beauty of this is that by putting this big of a volume together, you get some reduction in price [and] we think you can also create a [recycling] market. We've done it, and now we're in the process of inviting other states."

Forced by tight budgets and a sluggish economy to cut costs and make efficiencies wherever possible, government officials from coast to coast are finding that joint, or shared, purchasing arrangements make a lot of sense.

"It really is a way of maximizing the personnel and the fiscal resources you've got to run your organization," says Williams Warstler, state purchasing director in Michigan and chairman of the National Association of State Purchasing Officers. "With ll of us facing tough fiscal situations, this is seen as a salvation to get the work done and also to get some economies."

Besides the pioneerin Wisconsin/Minnesota paper project, Warstler pointed out that those two states also have joined with Nebraska and Oregon to purchase pharmaceutical products for state hospitals and institutions.

Also demonstrating that geography need to be a barrier to such arrangements are Arkansas and New Mexico. Officials there have worked out a contract involving rebates for infant formula purchased under the federally funded Women, Infants and Children (WIC) Program. Under the two states' solesource contract with formula manufacturer Ross Laboratories, the company now rebates to the states $1.50 for each can of formula sold--60 percent of the retail cost.

Regionally, across the Northeast officials of eight states are gearing up for a series of collective purchasing programs, including computer software, light bulbs and antifreeze, as well as pharmaceuticals and recycled paper.

Brian Rohetry, executive director of the National Association of State Budget Officers, warns that interstate joint purchasing is not the ultimate answer to budgetary difficulties. Also, there is generally some measure of red tape to sort out--things like statutory contracting differences between states--before such partnerships can be put into operation.

"[But] there is a lot of room for efficiency," Roherty says. "Why not go out and get the best [product] available and buy it with the best possible savings.?"

Privatiztion: A Sober Second Look

An enduring--and alluring--option for state officials seeking ways to cut the size and cost of government is privatization.

Turn programs and institutions over to private business, the theory goes, andn thus save money while providing better service. In the '70s and '80s, privatization took on the proportions of a nationwide fad as states began to contract out everything from highway repairs to computer operations. Major firms, in fact, sprang up to do nothing but build and manage prisons.

Amid the fiscal turmoil of the early '90s, the fad has been re-energized--but with a twist. Today, privatization is the target of a sober second look by experts who are cautioning states officials to tread this road with care.

In their recent book, Reinventing Government, authors David Osborne and Ted Gaebler warn that turning the public's business over to the private sector may, under certain circumstances, be "one answer, but [it is] not the answer" to the challenge of making government work effectively.

"Business does some things better than government, but government does some things better than business," the authors write. "Often when governments privatize an activity--contracting with a private company to pick up the garbage or run a prison, for example--they wind up turning it over to a private monopoly, and both the cost and the inefficiency grow worse."

Brian Roherty, executive director of the National Association of State Budget Officers, is leery of privatizing because it raises troubling questions about government responsibility. Roherty thinks the real political agenda in many cases is an effort to circumvent state employee unions, and he also believes the supposed benefits of privatization have been vastly oversold.

"It is an elixir that misleads people," he says.

Still, numerous states have taken the plunge to varying depths.

Kentucky, for example, contracts for state road repairs and various auditing services. In Alaska, officials have turned to business for various legal and computer services. Idaho's states government uses private custodial services. And Maryland is drawing upon the private sector for drug testing, state worker training and various other services.

The hottest arena for privatization, of course, remains the prison system.

One leading firm, Nashville-based Corrections Corporation of America (CCA), has been hired by states across the South in recent years to build some two dozen correctional facilities and operate some of them. In Texas, one of the states where CCA is involved, private firms run four 500-inmate pre-release centers under contract with the state. Officials say the program has the potential to ease severe overcrowding in a 48,000-inmate state prison system, although it is not clear whether it will, in the process, also result in substantial savings.

"These [pre-release] centers have not had a complete evaluation yet, but they appear to be doing what they were built for," says Charles Brown, a spokesman for the Texas Department of Criminal Justice.

Outside of the South, prison privatization became a serious topic of discussion this year in New Jersey. The new Republican Statehouse majority--which entered 1991 facing a $600 million budget deficit--has pressed the issue over the objections of the state's stop prison official.

William Fauver, New Jersey's corrections commissioner, told a legislative hearing that although he would consider the notion of privatizing "certain services, like medical services" in the prisons, he opposed the idea of turning the institutional keys over to an entrepreneur.

"There is not much experience, nationally, when it comes to privatization," Fauver said.

Lee Seglem is managing editor of New Jersey Reporter magazine.
COPYRIGHT 1992 National Conference of State Legislatures
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Title Annotation:includes related articles; government reorganization in answer to budget deficits
Author:Seglem, Lee
Publication:State Legislatures
Date:Jul 1, 1992
Previous Article:California heads for a budget showdown.
Next Article:Government reform, Florida-style.

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